Energy prices, News, RES

Energy prices in 2024. Under the influence of RES generation in the Polish power system

In recent years, we have been facing dynamic price volatility in the energy market. Year after year, there is almost a jumping trend, which worries both residential and business customers. The increase in the cost of electricity consumption is reflected in the prices of goods and services. Let’s consider what the electricity price forecasts are in 2024 and how they are affected by RES generation in the Polish electricity system.

Factors affecting energy market prices

There are many factors to consider. One of the key ones is the level of energy produced from RES. In recent years, there has been rapid growth in installed renewable capacity (PV and Wind) as shown in Fig. below:

The more green energy goes into the power system, the lower the final price of electricity. We experience this especially during sunny and summer days or in autumn and winter when we have windy weather. Then the prices on the SPOT market are definitely lower. The impact of RES in the power system became significantly apparent this year, in which the prices of selected hours, reached negative values, due to record generations of RES sources, sometimes covering almost completely the system demand, as shown in the following figure:

RES generation, also has an indirect impact through system exchange, because in periods of favorable weather, the oversupply of energy from neighboring countries, especially Germany, significantly reduces the price in the Polish market through imports.

In addition to RES generation, a key factor significantly affecting energy prices is the cost of energy commodities, including coal and gas. The cost of purchasing coal used by Polish power plants significantly exceeds that of its counterpart for the rest of Europe, as reflected in ARA index prices. This difference makes the cost of producing energy from hard coal in the Polish reality significantly higher than in other European countries.. Disparities in quotations of Polish coal (PSCMI1 index) and coal delivered at ARA ports, are shown in Fig. below:

Gas prices, which have been under significant pressure since the end of 2021, have recently reemerged as a key price driver following the intensification of the conflict in the Middle East. Further escalation of hostilities in the region, may result in dynamic increases in the price of this commodity, which will certainly translate into energy prices in the Polish market.

The last of the important determinants of electricity prices is the EU’s determination to move away from fossil sources, which is reflected primarily in CO2 quotations. Intensifying efforts to reduce greenhouse gas emissions, as advocated by a significant majority of EU citizens (according to the results of an open public consultation seeking views on the EU’s 2040 climate targets), could significantly boost already near-record EUA prices.

Based on all these factors, energy market participants estimate future costs and price in the electricity futures market. Estimates do not always turn out to be accurate, and unexpected situations such as trade restrictions or energy commodity market collapses can still drive up the market price of electricity.

Why are energy prices rising?

Wondering why electricity prices are rising? Among other things, this is due to the increase in costs associated with the purchase of energy resources. The more it costs to produce electricity, the higher the price on the market. In a similar way, the cost of electricity is affected by investments made by generators. Other factors determining the increase in electricity prices include: declining capacity reserves, rising costs of RES-related instruments, state fiscal policy, the cost of purchasing CO2 emission allowances, and the elimination of long-term contracts and thus freeing up the market after a period of deliberately undercutting wholesale prices.

RES generation and the Polish power system

RES generation is currently one of the key factors shaping the reality of Poland’s electricity system. It’s a low-cost source of power generation. The higher its percentage of energy production nationwide, the lower the cost of electricity in the market. This translates into real benefits and savings on the part of end users in the form of residential and business customers. Therefore, the impact of RES generation on the Polish electricity system and how important it is in the process of shaping price forecasts for the coming year cannot be underestimated.

Energy price forecasts for 2024

Will electricity prices rise in 2024? Or will they stay the same or decrease? With the end of 2023, we are increasingly encountering theoretical analyses of this issue. In my forecast, I will not limit myself to the only right conclusion and will present four possible scenarios. The coming weeks and months will determine which of these will prove viable.

Scenario in line with current valuation

We now know the current valuations of the Commodity Energy Exchange. This scenario is based on the current price of the BASE Y-24 contract at 621 PLN/MWh. If this scenario comes to pass, we will face an increase in energy prices on the market in 2024. By how much will the price of electricity increase? POLPX’s current pricing assumes an increase of about PLN 100 per MWh compared to the rate in effect at the end of 2023.

Forecast scenario

The second possibility is the forecast scenario. In this variant, we take into account the current prices of energy commodities, the cost of CO2 emission allowances and the average share of RES generation. Under the forecast scenario, we are also facing an increase in energy prices, but it will not be as severe as the current pricing of TGE. The averaged price per MWh should then be PLN 588. However, much depends on the choice of purchasing strategies.

Optimistic scenario

In this scenario, we assume a decrease in the price of energy commodities on the market, a decrease in the cost of CO2 emission rights and a high level of use of renewable sources (10% increase). This will ensure that RES generation represents a high percentage of the country’s total. Recent months have shown that this element of the scenario is achievable. If the other two also come true, the price of electricity in 2024 should remain close to the price at the end of 2023, at around 536 per MWh.

Pessimistic scenario

The pessimistic scenario assumes a price increase. It takes into account increases in the price of energy commodities and the cost of CO2 emissions, as well as a reduction in the share of RES generation in electricity production. If this happens, the average MWh price next year could hit as high as PLN 690. This is nearly 30% more than the price prevailing in the market at the end of 2023.

What should we expect?

Market mechanisms are influenced by many factors. Some of them are beyond our control. As a result, it is difficult to make 100 percent predictions about how the energy market will develop in the coming months. However, it is worth monitoring the situation and reacting in real time. One thing is certain. It is worth analyzing such factors as the amount of EUA units, gas and coal prices, weather risks and the share of RES generation in the system. This will help you make the right purchasing decision.

Purchasing Strategy 2024.

The final price will depend on the choice of the best purchasing strategy. The projected increase in RES production in 2024 could prove to be a salvation for Poland’s electricity market and prevent drastic increases in energy prices in 2024. Rather, we should not expect prices to decrease. According to Boryszew Green Energy experts , energy prices next year should be at the level of PLN 530-580 per MWh. In just a few months, we will see how much the price of electricity has risen and what factors determined such market behavior.

The issue of regulations introduced at the end of 2022 on maximum prices in the balancing market is still unknown. At the moment, the maximum price in the balancing market, is limited to the cost of power generation, reflected in the cost of coal, gas and CO2. Will the regulations be extended to 2024 ? The absence of these regulations will significantly affect the growth of energy quotations in the SPOT market and thus in the futures market.

The multiplicity and variability of factors determining such an important element of any enterprise as the cost of electricity makes the use of professional energy and gas sales entities not so much desirable as necessary. The period of energy crisis we have been in for some time has only highlighted the importance of companies specializing in energy trading, with specialists in forecasting the future prospects of the market playing an important role, so that such crucial decisions can be made in full knowledge.

Mikolaj Budzanowski
Boryszew Green Energy & Gas